ENC Regional News
Mon January 14, 2013
Online Sales Tax
A report on what the state is doing to recoup hundreds of millions of dollars lost thru the lack of online sales tax revenues.
Have you ever wondered why your online purchases come at such a discount? This week, LC Morris delves into the complexities of internet commerce and how the state of North Carolina is trying to benefit from your future purchases.
Online purchases made in North Carolina are not contributing to the state's economic growth. An e-fairness amendment to the Small Business, Jobs, and Tax Relief Act has been introduced to the Market Fairness Act. The M F A grants the authority to states to collect sales tax at the time of transaction - for purchases made online and through catalogs. The Executive Director for the Streamlined Sales Tax Governing Board -Scott Peterson, says the amendment would make state sales tax collections legal for purchases made from "remote sellers," no matter where they are located.
"One of the issues in sales taxes is that, states have today, is only the authority to collect that tax from retailer, who have, a physical presence of some nature or another, inside that state. NC doesn't have the constitutional authority to require a California retailer to collect a sales tax unless that CA retailer has made some kind of physical presence inside the state."
The Streamlined Sales Tax Governing Board was organized in March 2000. The goal was to find solutions for the complexity in state sales tax systems. They were tasked with calculating a formula which would require use the same sales tax minus or plus a cent.
"This has been an issue for a very long time. Long before the internet, back when everybody bought things remotely, did things with a catalog."
Today, twenty-four states including North Carolina, abide by the Streamlined Sales and Use Tax Agreement
"Retailers have complained for a long time that states tax and exempt nearly the same thing. NC has a sales tax holiday on back-to-school supplies and Vermont has sale on back-to-school supplies and the statute says back-to-school supplies. The Department of Revenue gives the statute of back-to-school supplies and both department of revenues come up with a different definition of back-to-school supplies and so the retailer is left with the responsibility of programming their computers or training their staff on the difference of those two state's difference of back-to-school supplies, even though those two state have exactly the same statute. One of the things we have done is: create simple definition. We've taken the definitions states commonly used that they disagreed with each other on and brought them together and said okay you exempt back-to-school supplies two days in August and you exempt back-to-school supplies two days in August. Why can't you use the same definition? Why can't pens and pencils be exempt in both states"
The effort resulted in the U.S. Supreme Court ruling that a state may not require a seller that does not have the physical presence in the state to collect tax on sales into the state. Local retailers are required to tax sales.
"You walk n the store. You try on the shoes. You like the shoes. You buy the shoes. That's an over-the-counter sale. The tax on that is easy. The retailer knows what the tax is. That state has the authority over the retailer. They're forced to collect the sales tax and everything is said and done. Different case when you go in and look at those same shoes; you try on those same shoes; you like them; you go on to some website. You buy the same exact shoes in that same exact size and they come to you at your home. If that retailer is not in NC, NC can't force them to collect that sales tax."
The House Judiciary Committee in July heard testimony, in which Peterson spoke, urging congress to pass the Online Marketplace Fairness Act. The e-fairness amendment could result in millions of dollars for the state of North Carolina. In 2009, a University of Tennessee study estimated that North Carolina's online shoppers owed $130.4 million dollars in sales taxes. The study predicted the state would lose out on $213.8 million dollars from uncollected taxes from online sales in 2012.
"The states would fail to collect roughly $23 billion, collectively, in sales tax that is legally owed but would go uncollected by the retailers and most likely unpaid by the consumers who should be paying the tax when they aren't charged the tax by the retailer."
In July, Senators Kay Hagen and Richard Burr urged constituents to call their offices in support of the Online Marketplace Act. If passed, the e-fairness amendment would require 'online-only retailers' to play by the same rules as local, brick and mortar businesses - allowing local businesses to compete fairly. Supporters say the move would strengthen local economies still struggling through a sluggish recovery.
Currently in North Carolina, mail-order products are purchased with no sales tax charged. But - by law consumers of online goods are supposed to calculate the sales tax and pay it when state income taxes are filed.
"In the states that have personal income taxes, that's how it's done today. There's usually a line on the income tax return or there's some statement inside the income tax bulletin that says, oh and by the way, if you have made purchases by catalog or over the phone or on the internet and you weren't charged sales tax, you owe that tax to our state and these are the instructions on how you go about paying that tax."
But most purchasers DO NOT acknowledge online purchases when filling out tax forms. According to the N.C. Department of Revenue, only about 2 percent of filers include mail-order sales taxes, generating only about $5 million dollars annually.
"The situation that exists today, having some that are required to collect the sales tax and some that aren't, creates an unleveled playing field. And retailers in NC who have to collect the sales tax are at a competitive disadvantage with similar retailers who are making sales in other states, who are making sales in NC but not collecting but aren't collecting NC sales tax."
As consumers continue to reap the economic benefits of online purchases - the e-fairness amendment waits in the wings. There is no set date for a vote. I'm L.C. Morris